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BYD: UGLY Q BUT EXPECTATIONS WERE LOW

It's going to be all about topline growth from here because it looks like there is little in the way of cost cutting available. 

 

Despite the "less bad" spin:

  • Las Vegas Locals EBITDA margins suffered their worst decline of the year – dropping 290 bps YoY to just 17.9%.
    • For the 1st time in years, costs actually increased, up 0.1%
  • In Downtown, EBITDA margins declined 490 bps YoY to just 10.9%
    • Expense control was tight – only up 0.1% but again there’s no room left to cut
  • Midwest and South had relatively their best quarters
    • Margins only declined 1.2% YoY
    • However, costs only decreased 0.5%
    • 4Q has the first “easy” comp of the year

Borgata:

  • Table hold was only 12.1% vs. an average 14.2% over the last 6 quarters.  Low hold cost them $9MM in revenues and probably about $3MM of EBITDA.
  • Operating expenses decreased 1% YoY
  • BYD declined the option to buy the other half of Borgata  - smart move in our opinion given the higher than expected multiple.  We're not convinced the deal on the table will go through so BYD may get another crack at a lower multiple


BYD: UGLY Q BUT EXPECTATIONS WERE LOW - byd


WEEKLY FINANCIALS RISK MONITOR - SHORT TERM OUTLOOK NOW NEGATIVE

Financial Risk Monitor Summary (Across 3 Durations):

  • Short-term (WoW): Negative / 1 of 10 improved / 6 of 10 unchanged / 3 of 10 worsened
  • Intermediate-term (MoM): Positive / 7 of 10 improved / 2 of 10 unchanged / 1 of 10 worsened
  • Long-term (150 DMA): Negative / 2 of 10 improved / 0 of 10 unchanged / 7 of 10 worsened / 1 of 10 n/a

WEEKLY FINANCIALS RISK MONITOR - SHORT TERM OUTLOOK NOW NEGATIVE - table

 

1. US Financials CDS Monitor – Swaps tightened last week, after sharp blowouts the week prior.  COF was the only exception, widening more than 20% week over week. 

 

Tightened the most vs last week: C, WFC, ALL

Widened the most vs last week: COF, PGR, SLM

Tightened the most vs last month: MTG, RDN, AGO

Widened the most vs last month: BAC, COF, PGR

 

WEEKLY FINANCIALS RISK MONITOR - SHORT TERM OUTLOOK NOW NEGATIVE - US CDS

 

2. European Financials CDS Monitor – In Europe, swaps indicated lessening risk. Swaps tightened for 29 of the 39 reference entities tightened and widened for 9.  

 

Tightened the most vs last week: Alpha Bank AG, National Bank of Greece, Bankinter S.A.

Widened the most vs last week: DnB NOR, Sberbank, Danske Bank

Tightened the most vs last month: Danske Bank, DnB NOR, Banco Pastor

Widened the most vs last month: Alpha Bank AG, National Bank of Greece, Bankinter S.A.

 

WEEKLY FINANCIALS RISK MONITOR - SHORT TERM OUTLOOK NOW NEGATIVE - euro cds

 

3. Sovereign CDS – Sovereign CDS increased 2.5 bps on average last week as Greece and Ireland reversed their declines.   

 

WEEKLY FINANCIALS RISK MONITOR - SHORT TERM OUTLOOK NOW NEGATIVE - sov cds

 

4. High Yield (YTM) Monitor – High Yield rates climbed slightly last week, closing at 7.95 on Friday.  

 

WEEKLY FINANCIALS RISK MONITOR - SHORT TERM OUTLOOK NOW NEGATIVE - high yield

 

5. Leveraged Loan Index Monitor – The leveraged loan index rose 0.4 points last week, closing at its YTD high. 

 

WEEKLY FINANCIALS RISK MONITOR - SHORT TERM OUTLOOK NOW NEGATIVE - leveraged loan

 

6. TED Spread Monitor – Last week the TED spread rose, closing at 16.9 bps.

 

WEEKLY FINANCIALS RISK MONITOR - SHORT TERM OUTLOOK NOW NEGATIVE - ted spread

 

7. Journal of Commerce Commodity Price Index – Last week, the index fell 1.3 points, closing at 18.1.

 

WEEKLY FINANCIALS RISK MONITOR - SHORT TERM OUTLOOK NOW NEGATIVE - joc

 

8. Greek Bond Yields Monitor – We chart the 10-year yield on Greek bonds.  Last week yields reversed their declines and rose 47 bps week over week.

 

WEEKLY FINANCIALS RISK MONITOR - SHORT TERM OUTLOOK NOW NEGATIVE - greek bonds

 

9. Markit MCDX Index Monitor – The Markit MCDX is a measure of municipal credit default swaps.  We believe this index is a useful indicator of pressure in state and local governments.  Markit publishes index values daily on four 5-year tenor baskets including 50 reference entities each. Each basket includes a diversified pool of revenue and GO bonds from a broad array of states. Our index is the average of their four indices.  Spreads fell very slightly last week, closing at 201.   

 

WEEKLY FINANCIALS RISK MONITOR - SHORT TERM OUTLOOK NOW NEGATIVE - markit

 

10. Baltic Dry Index – The Baltic Dry Index measures international shipping rates of dry bulk cargo, mostly commodities used for industrial production.  Higher demand for such goods, as manifested in higher shipping rates, indicates economic expansion.  Last week the index fell slightly, closing at 273 versus 276 the prior week.  

 

WEEKLY FINANCIALS RISK MONITOR - SHORT TERM OUTLOOK NOW NEGATIVE - baltic dry

 

Joshua Steiner, CFA

 

Allison Kaptur


THE M3: MACAU VISITOR GROWTH SLOWS; WING CHAO; HIGHER S'PORE INFLATION

The Macau Metro Monitor, October 25th 2010

 

 

VISITOR ARRIVALS FOR SEPTEMBER 2010 DSEC

September visitor arrivals rose by 8.9% YoY to 1,839,375, slower than the 14.2% growth in August.  Visitors from Mainland China increased by 1.9% YoY to 894,807 (48.6% of the total), with 341,036 traveling to Macau under the Individual Visit Scheme, down by 3.8% from September 2009. Visitors from Hong Kong (598,356); Taiwan, China (101,698); and Indonesia (34,087) grew by 21.5%, 5.5% and 13.3% respectively, while those from Japan (40,547) decreased by 9.4%.

 

THE M3: MACAU VISITOR GROWTH SLOWS; WING CHAO; HIGHER S'PORE INFLATION - MACAU

 

RECENTLY HIRED LAS VEGAS SANDS' DIRECTOR LEAVES COMPANY TO BECOME ITS ADVISOR macaubusiness.com

Wing T. Chao informed Las Vegas Sands Corp. that he planned to leave the board of directors in order to become a consultant to the company on its design and development projects effective early November.  Chao was elected to the LVS board of directors in July and was a former Walt Disney executive.

S'PORE INFLATION UP BY 3.7% Strait Times

In September, Singapore's inflation climbed 3.7% YoY to a 20-month high, due to higher transport, housing and food costs.  The Monetary Authority of Singapore (MAS) had said that with the economy nearing full employment, labor costs and food prices will continue to rise and that inflation could be around 4% by the end of 2010 and stay high in 1H 2011.


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Spirit Of Defiance

“There is no week nor day nor hour when tyranny may not enter upon this country, if the people lose their roughness and spirit of defiance.” 

-Walt Whitman

 

The world’s short-term US Dollar Debauchery trade is back in motion this morning: dollar DOWN = commodities and stocks UP. As the Buck Burns, Bloomberg’s #1 headline reads “G-20 To Avoid Competitive Devaluation.” Never mind the hypocrisy of it all - America’s currency is the only one being devalued. Provided that we don’t get suckered into buying stocks today, these will be looked back on as fascinating days in the Fiat Republic.

 

The good news is that, in addition to Americans pushing back against Washington’s economic policies, there is a Spirit of Defiance that’s building globally against Quantitative Guessing. Here’s a taste of what the respectable likes of Germany and Canada are saying:

  1. “It’s the wrong way to prevent or solve problems by adding more liquidity. Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate.” –Germany’s Economy Minister, Rainer Bruederle
  2. “I agree that there’s suggestion that aggressive quantitative easing in the United States would create devaluation pressure on the US currency.” – Canada’s Finance Minister, Jim Flaherty

Maybe not so surprisingly, while Canadian and German interest rates remain higher than America’s, both countries have lower structural unemployment levels and both of their respective stock markets are outperforming the SP500 for the YTD (Germany’s DAX +11.7% and Canada’s TSE +7.3%).

 

As both the Euro and Canadian Dollar strengthen, their citizenry is becoming wealthier. As both the German and Canadian populations age, the rate of return on their hard earned savings accounts isn’t being compromised for the sake of Banker of America’s earnings. As the world turns, both German and Canadian culture isn’t being held hostage by CNBC and US style Congressional commercials. Fancy that.

 

In the end, this won’t end well for America. Most of us who aren’t creating an economic strategy that conforms to the confirmation-bias in our year-end bonus package get that. “There is no week nor day nor hour” that we can pinpoint when this will all become crystal clear. But that time will come.

 

Last week was interesting in that the US Dollar Debauchery trade actually paused. However fleeting that moment was, it certainly gave the buy-and-hope crowd something to think about. Like a cold buddy shower, that was a healthy risk management exercise to observe.

 

The US Dollar closed up +0.55% on the week. That was the 1st week that Burning Buck was up in the last 6 and only the 4th week out of the last 21. All the while, both weekly US Consumer Confidence (ABC/Washington Post poll) and the MBA Mortgage Applications indices fell.

 

Americans having no confidence to lever themselves up with a “cheap mortgage” or chase the stock market higher (after a +13% rally since Bernanke introduced QE2 at Jackson Hole on August 27th) is not new news. What is news is what happens to asset prices when, God forbid, someone (China) attempts to give the US Dollar and the cost of capital some credibility.

 

Gold closed down -3.4% last week and was the standout loser in a relatively strong week for the US Dollar. That will, of course, all reverse this morning as the Buck Burns again, but it’s more interesting to note that almost everything else didn’t react as poorly as I would have thought in the face of US Dollar strength. Everything macro was actually quite flat.

 

On a week-over-week basis, here’s what was flat despite the US Dollar being up:

  1. Small Caps (Russell 2000)
  2. Euro
  3. CRB Commodities Index
  4. Oil
  5. Volatility (VIX)
  6. Yield Spread (10s minus 2s)

Given the extremely high inverse correlations between the US Dollar and everything else, the most obvious question here is why flat? Well, the week didn’t occur in a vacuum. It was very lumpy. The US Dollar picked up all of its strength in a 24 hour move after the Chinese raised interest rates on Tuesday (USD up +1.7% that day and the SP500 was down -1.6%). Otherwise, the US Dollar was flat to down for the remaining trading hours in the week.

 

The other obvious reason as to why, is the discounting mechanism that I think poses the greatest financial risk to your net wealth - the undeniable market expectation that the US Dollar will be compromised by Quantitative Guessing in t-minus a few weeks. This, Ben Bernanke, is the government sponsored risk that’s got the bulls in heat. God Speed with that by the way. In the Spirit of Defiance I’ll be a short seller of the SP500 from here until then.

 

My immediate term support and resistance levels for the SP500 are now 1165 and 1188, respectively. In the Hedgeye Virtual Portfolio, I’m currently short both the US Dollar (UUP) and the SP500 (SPY). The Cash position in the Hedgeye Asset Allocation Model is a healthy 61% (down from 67% last Monday). I’ll look forward to raising that Cash position today.

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Spirit Of Defiance - ww


THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - October 25, 2010

As we look at today’s set up for the S&P 500, the range is 23 points or -1.53% downside to 1165 and 0.42% upside to 1188.  Equity futures are trading above fair value in response to the tougher than expected rhetoric to come out of the weekend G20 meeting in South Korea. The G20’s communiqué stated that member countries will “refrain from competitive devaluation of currencies”, moving towards “more market determined exchange rate systems that reflect underlying economic fundamentals."

 

The US proposal to reduce trade imbalances by setting hard targets on current account balances was rejected at the meeting, though non-binding guidelines, monitored by the IMF, will be put in place.

  • Barron’s - Affiliated Managers Group (AMG) may rise on global growth through acquisition of smaller rivals and higher pension fund investment.
  • Applied Signal Technology (APSG) hired BofA to explore strategic options
  • Barron’s - Hewlett-Packard (HP), Cisco Systems (CSCO), Dell (DELL), IBM (IBM), Oracle (ORCL) may be challenged by the growth of cloud computing.
  • Barron’s - Las Vegas Sands (LVS) may be attractive long-term as the economy and gaming market expands in Singapore -
  • Barron’s - Nalco Holding (NLC) may rise 50% as growth in China boosts demand for pollution-control technologies.
  • Regis (RGS) is drawing interest from several PE bidders, Reuters reported, citing 3 sources familiar
  • Value Line (VALU) said it will pay a $2-a-share special div. vs regularly scheduled 20c-shr payout
  • Wynn Resorts (WYNN) filed with regulators to sell undisclosed amount of stock

 PERFORMANCE

  • One day: Dow (0.13%), S&P +0.24%, Nasdaq +0.80%, Russell +0.76%
  • Month/Quarter-to-date: Dow +3.19%, S&P +3.67%, Nasdaq +4.68%, Russell +4.04%
  • Year-to-date: Dow +6.76%, S&P +6.10%, Nasdaq +9.27%, Russell +12.48%
  • Sector Performance: Energy +0.66%, Consumer Discretionary +0.55%, Consumer Staples +0.35%, Technology +0.29%, Financials (0.03%), Healthcare +0.03%, Industrials (0.03%), (0.31%), Utilities (0.65%), and Materials (0.72%)

 EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: 593 (+652)
  • VOLUME: NYSE - 773 (-26.79%)
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: Compuware +12.70%, Anadarko +6.33% and Nvidia +6.31%/Leggett &Platt -8.61%, Allegheny -4.89% and Firstenergy -4.60%.
  • VIX: 19.27, -2.63% - YTD PERFORMANCE: (-11.12%)
  • SPX PUT/CALL RATIO: 1.06 from 1.70 -37.89%

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 16.57 -0.304 (-1.803%)
  • 3-MONTH T-BILL YIELD: 0.13%   
  • YIELD CURVE: 2.24 from 2.20

COMMODITY/GROWTH EXPECTATION:

  • CRB: 297.23 +0.57%
  • Oil: 81.69 +1.4% - BULLISH
  • COPPER: 379.70 +0.41% - OVERBOUGHT
  • GOLD: 1,324.00 -0.03% - BULLISH

CURRENCIES:

  • EURO: 1.3945 +0.59% - BULLISH
  • DOLLAR: 77.472 +0.07%  - BEARISH

OVERSEAS MARKETS:

 

European markets:

  • European markets opened higher as G20 finance ministers agreed to avoid competitive currency devaluations and continuing M&A activity buoyed sentiment.
  • Following the G20 meeting the US dollar resumed its slide, leading to higher metal prices.
  • Stock Exchange shares were aided by Singapore Stock Exchange's bid for the Australian Stock Exchange.
  • Luxury goods shares moved higher after LVMH's purchase of 14.2% stake in Hermes.
  • Auto's are also amongst the leading gainers extending Friday's gains post Volkswagen results.
  • Only the bank sector is trading lower on the day, led by Italian banks after Banco Popolare announces a capital raising and the FT reported that Italy's big banks prepare to slash dividends.

Asian markets:

  • Asian markets were mostly up today after the G20 promised this weekend that it would address global currency devaluations.
  • China moved up on the strength of metals stocks. 
  • Australia was focused on ASX which soared 19% after the Singapore Exchange offered A$8.4B in cash and stock to buy it.
  • Banking stocks rose, and Santos and Beach advanced 3% and 7%, respectively, when Santos addressed concerns that it would not have enough coal seam gas to support its LNG JV at Gladstone.
  • Carmakers and shipbuilders gained, but tech stocks were weak in South Korea.
  • On low volume, Japan declined as the yen continued to rise against the dollar.
  • Japan September trade surplus +54% y/y; exports rose 14.4%, and imports grew 9.9%. September restaurant sales +0.3% y/y, customer volume +3.9%, sales per customer (3.4%).
Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends

 

THE DAILY OUTLOOK - S P

 

THE DAILY OUTLOOK - VIX

 

THE DAILY OUTLOOK - DOLLAR

 

THE DAILY OUTLOOK - OIL

 

THE DAILY OUTLOOK - GOLD

 

THE DAILY OUTLOOK - COPPER



BYD YOUTUBE

In preparation for Boyd Gaming's Q3 earnings release on Monday, we’ve put together the pertinent forward looking commentary from BYD’s Q2 earnings release/call and subsequent conferences.

 

 

2Q YouTube

  • “The weakness we experienced following our last conference call in early May is a reflection of the fragile nature of today’s consumer, and the fragile nature of consumer confidence in general. Whether it’s the burgeoning federal deficit, volatility of the stock market, the European debt crisis, or stubbornly high unemployment, the consumer is reacting more quickly to the news than ever before. Their current reaction has been to pull back on their spending. The severity and length of this recession has clearly had a profound effect on consumer behavior.”
  • “We anticipate that the third quarter will trail last year’s results, but as we have said in the past, starting in the fourth quarter, we will have much easier comparisons going forward.”
  • “However, starting in late June and continuing into July, we have seen a return to expected summer levels of business with occupancy and business volumes more representative of a typical summer season.”
  • “We continue to believe that YoY growth is achievable by the end of this year.”
  • “Las Vegas convention attendance in March, April and May increased between 3 and 5% and we expect to see meaningful growth in bookings in 2011.”
  • “Normal seasonality for the Las Vegas Locals market shows a low point in the third quarter and a peak in the first quarter, with the second and fourth quarters lying in between.”
  • [Downtown Las Vegas] “During the second quarter, we increased our market share by over one full % point to 30.5%, up from 29.2% in the second quarter of 2009.”
  • “Borgata ended the quarter with a debt balance of $627 million. We issued an 8-K last week regarding a potential refinancing of Borgata’s debt. If the transaction is approved by the New Jersey Casino Control Commission, a distribution of approximately $100 million will be made to Boyd.”
  • “We continue to expect total corporate expense for 2010 to be $40 million in line with our previous expectations.”
  • [Consolidated tax rate] “We expect this rate to be approximately 30% for the remainder of the year.”
  • “I think what we saw in July and what we’d expect to continue to see throughout the summer, will continue to be in the trends that we generally saw in the first and second quarter.”
  • “Going forward, we wouldn’t expect to have increased utility costs kind of in the fourth quarter largely because we had such terrible weather in the fourth quarter last year. Obviously in the third quarter it should be higher just because of the extreme heat that we are dealing with right now…We didn’t see rates dramatically increase. Really it is a usage issue.”
  • “In the last couple of years as we have worked our way through this recession I think we – and most companies in the business have pulled back on what we call maintenance capital. And I think our focus going forward is to make sure our properties are well maintained and are competitive. [Maintenance Capex] increasing in 2011.”
  • “We still believe buying EBITDA is better than building EBITDA in the current environment.”
  • “Well as some of the opportunities we’ve looked at including Stations haven’t come to fruition, we’ll use our free cash flow to pay down debt, reduce our overall debt load and improve our leverage ratio just going forward as we look to de-lever the company, absent of this style of acquisition.”

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